EYE ON THE MARKET • MICHAEL CEMBALEST • J.P.

MORGAN • September 30, 2024

2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Mind the Gap: candidate policy comparisons in a historically polarized US Election; China stimulus package
Every time I think the ideological gap between Presidential candidates can’t widen further, the electorate proves
me wrong. The chart below is the best way I have to empirically assess how wide that gap is. I use VoteView
data, a spatial estimation approach used by political scientists since the 1980’s. Each politician’s ideology is
measured by looking at how frequently they vote with associated blocs. The circles show Presidential
administrations while triangles show individuals 1. 0F

Political ideology of US Presidential administrations, Trump 2024: Cotton, Graham, Braun, Greene,
2024 candidates and select other politicians Boebert, Paul, Perdue, Gosar, Scalise,
Blackburn, Gaetz, Hawley, Jordan, Vance

2024 Harris Walz Vance

Biden
2016 Warren Trump
2008 Obama
2000 GW Bush
1992 Clinton
Bush
1984
Reagan
1976 Carter
1968 Nixon
LBJ
1960 JFK
1952 Eisenhower
Truman
1944
Most liberal Most conservative
1936
FDR
1928 Hoover
Coolidge
1920
-0.9 -0.7 -0.5 -0.3 -0.1 0.1 0.3 0.5 0.7 0.9
Source: Liberal-Conservative scores derived from VoteView Roll Call data on Congressional voting histories, JPMAM. 2024.
See footnote 1 for administration composite details

Since WWII, Harris is the 6th most liberal senator and Vance is the 6th most conservative senator. Senators
more conservative than Vance since WWII include mostly sitting members (Tuberville-AL, Paul-KY, Lee-UT,
Schmitt-MO), while Senators more liberal than Harris are mostly former members with the exception of Warren-
MA and Sanders-VT (when measuring his voting record in the Senate and not the House).

1
Presidential composites. I based each administration's composite score on members of its Executive Branch with
Congressional voting history; members of Congress that led passage of its major legislative initiatives; and members
that served as proxies for its political and governing principles. Your mileage may vary.
Coolidge: Curtis, Kellogg, Slemp, Davis, Jones (Wesley), Moses, Jones (William)
Hoover: Curtis, Hawley, Longworth, Moses, Tilson, Mills, Watson
FDR: Barkley, Black, Byrnes, Garner, Guffey, McCormack, Robinson, Hull, Rayburn, Truman
Truman: Byrnes, Truman, McCormack, Barkley, Vinson, Rayburn, Anderson, Schwellenbach
Eisenhower: Dirksen, Dulles, Flanders, Nixon, Saltonstall, Adams, Taft, Lodge
JFK: Bolling, Humphrey, Kennedy, Johnson, Mansfield, Kennedy, Udall, Ribicoff
LBJ: Celler, Humphrey, Yarborough, Johnson, Mansfield, Pepper, Gonzalez, Brooks
Nixon: Ford, Lott, Nixon, Sandman, Wiggins, Morton, Rumsfeld, Tower, Dole
Carter: Bayh, Byrd, Hawkins, Mondale, O'Neill, Wright
Reagan: Baker, Bush, Dole, Kemp, Roth, Laxalt, Lugar, Michel
Bush: Quayle, Bush, Cheney, Madigan, Kemp, Martin, Michel, Simpson
Clinton: Bentsen, Gore, Glickman, Gephardt, Ford, Nunn, Robb, Panetta
GW Bush: Ashcroft, Blunt, Cheney, Delay, Kyl, McConnell, Santorum, Rumsfeld, Kempthorne, Abraham
Obama: Biden, Durbin, Clinton, Kennedy, Kerry, Obama, Pelosi, Reid, Waxman, Hoyer, Clyburn, Waters
Trump: Cotton, Graham, Hatch, McCarthy, Meadows, Paul, Perdue, McConnell, Scalise, Sessions, Ryan, Collins
Biden: Bass, Biden, Clyburn, Coons, Hoyer, Pelosi, Richmond, Sanders, Schumer, Warren, Harris
1
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

What the chart cannot measure. There are many aspects of a candidate’s leadership and governance abilities
that a polarization chart cannot measure. This may explain the unusual circumstance in which a large number
of senior officials in Trump’s first term now oppose his current candidacy, as illustrated below 2. 1F

If you don’t believe that political divisions and acrimony have reached new levels, watch this video 3 of debate 2F

moments between Gore, Bush, Obama and Romney. A lot has changed just in just 10 years. On the issue of
political divisions, I have a modest suggestion. Banks often invite CEOs to address other CEOs at industry
conferences. My suggestion: don’t invite anyone to speak to your clients if you would fire your own employees
for tweeting what that CEO has said publicly. Elon Musk is one example that comes to mind. With that, let’s
look at major policy differences of interest to investors, and at last week’s China stimulus package.
Former Trump Cabinet members and other senior positions: their positions on Trump 2024
Number of people
17
16
Mick Mulvaney Bll Barr
15
John Bolton Niki Haley
14
H.R. McMaster Mitch McConnell
13
James Comey Jeff Sessions
12
Kelly Craft Steven Mnuchin
11
Gina Haspel Wilbur Ross Bill Shine
10
Stephanie Grisham Chad Wolf Alex Azar
9
John Kelly Rick Perry Robert Wilkie
8
Betsy DeVos Mark Meadows Chris Wray
7
Elaine Chao Reince Priebus Kirstjen Nielsen
6
Hope Hicks Robert O'Brien David Shulkin
5
Paul Ryan Michael Flynn Dan Brouillette
4
Mark Esper Ben Carson Tom Price
3
Jim Mattis David Bernhardt Eugene Scalia
2
Rex Tillerson Ryan Zinke Alex Acosta
1
Mike Pence Mike Pompeo Sonny Perdue
0
Repudiations/disavowals 2024 endorsements No public comment
Source: JPMAM, March 11, 2024. Categorizations based on our interpretation of public statements. The information presented is not
intended to be making value judgments on the preferred outcome of any government decision or political election.

Contents
Fiscal policy .................................................................................................................................................................... 3
Tariffs and trade ............................................................................................................................................................ 6
Energy ............................................................................................................................................................................ 7
Immigration ................................................................................................................................................................... 8
Inflation and price controls ........................................................................................................................................... 9
NATO ........................................................................................................................................................................... 10
The regulatory state .................................................................................................................................................... 10
Some comments on the Electoral college ................................................................................................................... 11
The China stimulus package, an important turning point ........................................................................................... 12

2
The chart above includes all persons serving in the following positions from 2016-2020: Vice President and 15
department heads in the Cabinet, National Security Advisor, FBI Director, CIA Director, UN Ambassador, White
House Chief of Staff, White House Communications Director, GOP House Speaker, GOP Senate Majority Leader.
Minimum term: 9 months. The senior officials in red from Trump’s first term are not the only ones opposing
his candidacy: more than 700 former national security and military officials wrote an open letter in which Trump
was described as impulsive and ill-informed [National Security Leaders for America, September 2024]
3
Video sourced from @StartsWithUs/Builders, rebroadcast rights conveyed
2
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Fiscal policy
From a big picture perspective, neither candidate has addressed the crossover point in the early 2030’s at which
time entitlement spending plus interest will exceed Federal revenues. I have a hard time getting excited about
market implications of fiscal proposals when they exist on the margin of a much bigger problem.
Entitlement spending, mandatory outlays and net interest
payments vs revenues, % of GDP
25% The Federal debt under Trump and Biden
23% Entitlements + Other Mandatory • Dead heat: had nominal GDP followed pre-pandemic
Outlays + Net Interest projections, and after netting out starting cash
21%
19% balances, debt to GDP would have grown by 15%
17% Revenues under Trump and 16% under Biden
15% • A separate analysis looks at debt approved via
13% legislation and executive actions. Excluding the
11% CARES Act and other COVID relief, Trump approved
9% ~$4.8 trillion of borrowing; excluding the American
7% Rescue Plan, Biden approved ~$2.2 trillion
5% • Source: Marc Goldwein, Committee for a Responsible
1965 1975 1985 1995 2005 2015 2025 2035
Federal Budget
Source: Congressional Budget Office, JPMAM, March 2024

The challenge with fiscal proposals is that tight margins in Congress and the possibility of divided government
make them unlikely to be enacted as designed. But let’s start there, since such proposals are a good indication
of where the country’s fiscal position may be heading based on who wins.
Harris proposals. The table shows Harris spending proposals on the left and revenue-raising proposals on the
right. Even with a Democratic sweep some of this would likely get scaled back, and any excess of spending over
taxes would be financed via deficits. Even so, it’s a good proxy for the Harris policy of redistribution: increase
taxes on the wealthy by $1.3 trillion, increase taxes on corporations by $2.8 trillion and use the proceeds to
preserve middle class tax cuts and increase entitlements for the poorest Americans, homebuyers and families.
Harris spending vs tax/revenue-raising proposals
Deficit increasing policies 10 year Deficit decreasing policies 10 year
cost savings Policy
(US$, bn) (US$, bn) type
Extend Tax Cuts and Jobs Act of 2017 under $400k $2,600 Specifically proposed by Harris
Make Child Tax Credit ($3k or $3.6k) permanent $1,100 Increase corporate tax rate from 21% to 28% $978 C
Child care and early learning $600 Unrealized capital gains tax on ultra high net worth individuals $503 H
Make ACA premium credit expansion permanent $384 Reduce cost of prescription drugs $250 O
Establish national paid family and medical leave $325 Raise buyback tax rate from 1% to 4% $166 C
Cancel medical debt for majority of Americans $220 Tax capital gains at death ($5mm to $10mm exemption) $150 H
Expand Earned Income Tax Credit for childless adults $163 28% tax on capital gains for filers with $1mm+ annual income $100 H
Improve Medicaid home and community-based services $154
Exempt tips from income tax $150 Endorsed from Biden's budget
$6k Child Tax Credit for newborns $100 Increase ACA Net Investment Income Tax to 5% >400k $404 H
$25k downpayment support for first time homebuyers $100 Apply Net Investment Income Tax to active business income $393 C
Other housing supports $100 Int'l bus tax: revise global minimum tax, limit inversions $374 C
Expand startup expense deduction to $50k $8 Limit excessive employee remuneration $272 C
Increased revenue from IRS investment $237 O
Loss limits on non-corp taxpayers, leverage deductibility limits $144 C
Raise corporate alternative minimum tax to 21% from 15% $137 C
Int'l bus tax: adopt undertaxed profits rule $136 C
Int'l bus tax: revise fossil income rules, interest allocation rules $122 C
Close estate and gift taxation loopholes (no basis step-up at death $97 H
Extend mandatory sequester $90 O
Enact excise tax on digital asset mining $66 C
Limit tax loopholes (carried interest, like-kind exchanges) $63 H
Modify energy taxes $45 C
Total $6,004 Total $4,727
Source: PSC, Don Schneider, September 2024. C = corporate taxes, H = high net w orth taxes, O = other

3
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Some history on corporate taxes since raising them is a main focal point of the Harris approach:
• US corporate tax rates were long seen as uncompetitively high. One illustration: as tax rates outside the US
fell starting in 2000, US companies increasingly reincorporated elsewhere for tax purposes (inversions), while
no companies inverted into the US. Both Bush and Obama administrations recognized this issue, and Obama
proposed cutting the corporate tax rate to 28% from 35%
• After the TCJA was passed in 2017, US corporate tax rates (best measured by looking at the effective
corporate tax rate on new capital investment 4) declined relative to other major countries and US inversions
3F

effectively ceased when contemplated for tax reasons

• Harris proposals could increase US corporate taxes to their highest level as a share of GDP 5 since 1980, which 4F

could trigger another round of inversions

Tax rates and inversions out of the US Effective corporate tax rate on new investment
Corporate income tax rate Number of US inversions Japan
55% 10 Italy
50% US (Harris 2028)
45% US 8 Germany
US (Harris 2025)
40%
6 France
35%
OECD ex-US Netherlands
30% US (current)
4
25% United Kingdom
# of US Canada
20% 2
inversions
15% Singapore
Switzerland
10% 0
'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 0% 5% 10% 15% 20% 25% 30% 35% 40%
Source: Mercatus Center at George Mason University. 2016 Source: Mintz and Bazel METR analysis, September 2024

US corporate income tax receipts as a share of GDP The rise of pass-through entities subject to personal (and
Percent not corporate) tax, Number of tax returns, mm
3.0% 4.5
With Harris policies S Corporations
Historical 4.0
2.5%
3.5
3.0
2.0% C Corporations
2.5
2.0
1.5%
1.5
1.0 Partnerships
1.0%
0.5
0.0
0.5%
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
1980 1990 2000 2010 2020 2030
Source: CBO, Piper Sandler, 2024 Source: IRS, 2015

4
On corporate taxes: looking at one year in isolation can be distorted by tax carry-forwards or carry-backs,
changing tax rules, etc. A further complexity: US companies receive credits for taxes paid overseas. As a result,
if you divide US corporate tax payments by worldwide income, effective tax rates would be understated since
they would exclude foreign tax payments from the numerator. That’s why many tax economists use a “marginal
effective tax rate on new investment” approach to compare corporate tax rates across countries
5
As shown in the chart above on the right, the use of S corporations and qualifying partnerships has risen sharply
since 1980. Both are subject to personal income tax rather than corporate income tax. As a result, the US
corporate tax to GDP ratio does not include some business taxes other countries report as “corporate; this ratio
is not comparable across countries
4
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Trump’s fiscal agenda is harder to pin down since it keeps changing. Trump proposes extending all TCJA tax
cuts, raising the cap on state/local taxes that are deductible on Federal returns, exempting tips from income tax,
cutting the corporate income tax to 15% for companies that “make products in America”, and has floated the
idea of ending taxation of Social Security benefits. I think at this point, the right question to ask is: what tax has
Trump not proposed cutting?
Spending cuts. Trump has proposed cutting spending associated with the energy bill. All it would take is a
simple GOP majority in both chambers, although there’s a small GOP House contingent that has called for only
modest cuts to the bill. What’s most likely to remain: ITC/PTC tax credits for wind/solar, the nuclear PTC, carbon
sequestration credits, clean fuel credits and manufacturing subsidies. What’s most at risk: EV tax credits.
The big question: tariff revenues. Economists have modeled potential revenue gains from a 10% universal
tariff and a 60% tariff on China 6. But these estimates are highly uncertain, as they rely on elasticities of imports
5F

to tariff levels and estimated shares of importer/exporter tariff burden. They also usually exclude retaliation
impacts and subsidies for US firms harmed by them, any trade diversion on China tariffs and growth impacts.
All things considered, budget deficits would probably rise the most in a Trump victory/GOP Sweep. The charts
below compare assessments of Trump fiscal policies vs the CBO baseline; we adjusted when necessary to include
universal tariff impacts. We then created the bottom two charts for purposes of comparing Trump and Harris.
Taken at face value (again, I think that’s a mistake since plans won’t be enacted as proposed), the Harris primary
deficit impact would be smaller than Trump’s in almost all circumstances. I thought it was notable that the Wall
Street Journal published an Op-Ed by Jason Furman with the tagline “Harris Is the Safer Economic Choice: Both
candidates have bad ideas but Trump’s are worse, and likelier to find support in Congress” [Sep 16, 2024].
Nominal budget deficit estimates for Trump proposals Primary budget deficit estimates for Trump proposals,
Percent of GDP Percent of GDP
-5.0% -1.5%
CBO baseline
CBO baseline
-5.5% -2.0%
Goldman Sachs
Bridgewater Piper Sandler
-6.0% -2.5%
Wharton

-6.5% -3.0%

Suttle Economics Wharton + SALT cap removal

-7.0% -3.5%
2024 2025 2026 2027 2028 2029 2030 2024 2025 2026 2027 2028 2029 2030
Source: CBO, Suttle, Bridgewater, CRFB, JPMAM, September 2024 Source: CBO, Wharton, Piper Sandler, CRFB, JPMAM, September 2024

Harris: 10-year budget deficit effect of proposed policies Trump: 10-year budget deficit effect of proposed policies
US$ trillions US$ trillions
Corporate tax hikes Universal 10% tariff
Taxes on wealthy Repeal clean energy sub
Other rev raisers 60% China tariff

Tax cuts extended for <$400k AGI Extend indiv tax cuts
Child care/learning Eliminate SS benefit taxes
Healthcare Repeal SALT cap
Housing Extend bus tax cuts
Other spending Lower corp inc tax

Net Net
-$3 -$2 -$1 $0 $1 $2 $3 -$4 -$3 -$2 -$1 $0 $1 $2
Source: JPMAM, September 2024 Source: JPMAM, September 2024

6
“Why Trump tariff proposals would harm working Americans”, Kim Clausing (UCLA), PIIE, May 2024; and
“Trump’s Universal Baseline Tariff”, CRFB, September 2023
5
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Tariffs and trade

Trump proposals include a 60% tariff on Chinese imports and a 10% universal tariff on all imported goods. Trump
and Vance insist that other countries pay for these tariffs, but it’s hard to find credible sources that agree with
them; almost every analysis comes to the opposite conclusion 7. I have no doubt that Trump’s campaign will
6F

dredge someone up to agree with them, but this appears to be settled science amongst economists.
Goldman estimates that a 10% across the board tariff would increase inflation by 1% and decrease GDP growth
by 0.5% on a one-time basis, while Barclays estimates a higher growth hit at -1.4% 8. Even so, US voters appear 7F

increasingly willing to pay a price to partially dial back globalization. I can understand why: after China joined
the WTO, US manufacturing job losses accelerated, the US labor income share declined and US opioid addiction
rates rose, particularly in communities most affected by Chinese competition. As per the last chart, China is the
most mercantile country in the world; isolating it seems to be one of the most bipartisan positions in Congress.
Policies. While Harris has not proposed higher tariffs on China or a universal tariff, both she and Trump support
ending the De Minimis exemption for Chinese imports.
After China joins the WTO, its FX intervention rises and ...coinciding with a sharp decline in US labor's share of
US manufacturing job losses accelerate... corporate profits
10-year % change FX reserves % of GDP, 12-mo. avg. (inverted) 10-year % change % of non-financial gross profits
10% -10% 10% 66%

0% 0% 0%
64%

-10% 10% -10%

62%
-20% 20% -20% China joins
China joins World Trade 60%
-30% World Trade 30% -30% Organization
Organization US manufacturing job losses
US manufacturing job losses (lhs) 58%
-40% 40% -40%
(lhs) US labor % of gross profits
Chinese FX Intervention (rhs) (rhs)
-50% 50% -50% 56%
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25
Source: IMF, People's Bank of China, JPMAM. September 2024. Source: BLS, BEA, JPMAM. September 2024.

...and a rise in US opioid use China: the world's most mercantile country
10-year % change Opioid prescriptions per capita China's score vs the rest of the world, 100 = best, 0 = worst
10% China joins World 0
Public ownership of the private sector
Trade Organization 100
0% Protection of trade secrets and data
200
IP Enforcement (civil/crim penalties, transparency, fines)
-10% 300
Extent of pirated software
400
-20% Barriers to market access and forced technology transfer
500
US manufacturing job losses Copyright protections, injunctive relief, anti-piracy rules
-30% (lhs) 600
Receptivity to Foreign Direct Investment
700
-40% Opioid prescriptions per capita, Mercantilism Index (forced local production in exchange for market access,
morphine milligram equivalents 800 export subsidies, IP theft, favoritism of domestic companies, FX manipulation)
(rhs)
-50% 900
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '25 0 20 40 60 80 100
Source: BLS, Stanford SIEPR, DEA, JPMAM. September 2024. Sources: OECD, BSA, GIPC, ITIF, Fraser Institute, JPMAM. 2019.

7
All of the following conclude that US consumers end up paying for tariffs: “Who Really Pays the Tariffs? US
Firms and Consumers Through Higher Prices”, Tax Foundation, Dec 2021; “The Economic Impacts of a US-China
Trade War”, NBER, Fajgelbaum et al, Dec 2021; “Who Pays the Tax on Imports from China?”, New York Fed,
Matthew Higgins et al, Nov 2019; “The US Economy Under President Trump: Take 2”, Suttle Economics, Jul 2024;
“Who pays Trump's tariffs, China or US customers and companies?”, Reuters, Rajesh Singh, Jun 2019
8
“The Election and the Economy: Estimating Immigration, Trade, and Fiscal Effects”, Goldman Sachs, September
2024, and “Tariffs: Counting the Costs”, Barclay’s, September 2024
6
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Energy
The two candidates differ on energy policy, although to be clear, US production of oil, gas and natural gas liquids
rose under the Biden administration. Some analysts point to a decline in drilling permits on Federal land under
Biden, but that’s a pretty marginal issue at a time of all-time highs in US production.
Rather than restrain oil & gas, the Biden/Harris approach has been much more carrot than stick: the true cost
of energy bill incentives and subsidies for renewable power, carbon capture, green hydrogen, battery storage
and EV adoption may reach $1 - $3 trillion by the end of the decade 9. As shown below, these costs are showing
8F

up in rising electricity prices, particularly when measured against places where energy-intensive production is
outsourced to (China/India). And even though the journey to greater electrification of energy consumption has
only just begun, the highest inflation category in the PPI report since 2020: transmission and transformer
equipment. A progress marker: the renewable share of US final energy consumption is 8%, up from 4% in 2010.
On fracking which Harris reportedly no longer opposes: this method of extracting hydrocarbons still accounted
for 60% of US primary energy in 2023 (fourth chart). That may explain why Harris’ position on fracking might
have changed. On page 11, we superimpose party preferences in the 2020 election over a county map of oil &
gas deposits in Pennsylvania. Biden won the state by ~70k votes, a narrow margin which could have been
reversed by voters in a few oil and gas counties like Erie, which Trump won by 2% and which Biden won by 1%.
Harris supported a firm 2035 deadline for all new US vehicles to have zero emissions when running in 2019; she
reportedly no longer holds that view, preferring the subsidy approach in the energy bill. As of Q2 2024, EVs
were ~9% of US sales and ~1% of all US vehicles on the road.
Production of crude oil, natural gas and natural gas liquids Residential electricity prices
Trillions of BTUs per month Multiple of China and India average price
8,000 4.0x
Natural Gas Liquids
7,000
Natural Gas 3.5x California
6,000
Crude Oil
5,000 3.0x New York
4,000
2.5x Pennsylvania
3,000

2,000
2.0x Texas
1,000

0 1.5x
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: EIA, JPMAM, September 2024 Source: EIA, IEA, JPMAM, Q1 2024

Core goods PPI component inflation Hydraulic fracturing accounted for 61% of all US primary
% increase vs 2018 for each of the 47 core goods categories energy consumption in 2023
80% Solar
100%
Transformers & Wind
70% Power Regulators 90% Hydro
Nuclear
60% 80%
Coal Biomass/geo
50% 70% Oil, gas and NGLs from
60% conventional sources
40%
50%
30%
40% Oil, gas and NGLs
20% from unconventional
30%
sources requiring
10% 20% hydraulic fracturing
0% 10%
-10% 0%
Source: Bloomberg, JPMAM, July 2024 Source: EIA, BP, Society of Petroleum Engineers, S&P Platts, JPMAM. 2023.

9
“A Year Into Biden’s Climate Agenda, the Price Tag Remains Mysterious”, Bloomberg, August 16, 2023
7
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Immigration
“No great nation can be in a position where they can’t control their borders”, Senator Joe Biden in 2008
Immigration affects a variety of economic issues: it typically boosts growth, reduces pressure on the Fed to
tighten policy rates and increases the workforce at a time of low US birth rates. But unmanaged immigration
and surging asylum/migrant inflows also sharply increase budgetary pressures on US cities, straining their credit
ratings and resulting in billions of dollars in offsetting budget cuts, and exacerbates housing shortages 10. Before 9F

the migrant surge in 2023, illegal immigrants represented ~25% of the US foreign-born population.
Net immigration by year Pending immigration cases
Millions of people Number of cases, millions
3.5 2.5

3.0
Oct '23 - Sept '24 2.0
2.5
1.5
2.0

1.5 1.0
1.0
0.5
0.5

0.0 0.0
2000 2005 2010 2015 2020 2025 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24
Source: CBO, CBP, 2024 Source: Brookings Institution, Elaine Kamarck, February 2024
Immigrant (permanent) visa issuances Immigration and Customs Enforcement (ICE) removals by
Millions, annual rate presidency, Monthly removals
0.8 45,000
6-month average Obama
0.7 40,000 Removals refers to the
Bush number of non-citizens
0.6 35,000
deported from the US
30,000
0.5 Trump
25,000 Biden
0.4
20,000
0.3
15,000
0.2
10,000
0.1 5,000
0.0 0
Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24
Source: US Department of State, JPMAM, July 2024 Source: TRAC, JPMAM, September 2024

New proceedings filed in immigration court, 2020-2023 Unauthorized immigrants were 23% of the US foreign-born
Number of cases population in 2022, Foreign-born population estimates, 2022
350,000
Total lawful
300,000 Colorado immigrants
Illinois Unauthorized 36.9mm
250,000 New York immigrants 77%
Texas 11.0mm
Temporary
200,000 23% Naturalized
lawful
citizens
residents
150,000 23.4mm
2.0mm
Lawful 49%
4%
100,000 permanent
residents
50,000 11.5mm
24%
0
2020 2021 2022 2023
Source: Transactional Records Access Clearinghouse, S&P Global, 2024 Source: Pew Research Center, 2022

10
“Migrants and asylum seekers pose budgetary challenges”, S&P Global Ratings, February 13, 2024
8
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

The numbers behind the migrant surge 11. CBO estimates that the Biden administration released an extra 2.3
10F

million immigrants into the US in 2023 (3.3 mm vs ~1 mm per year from 2004 to 2020), not including another
860,000 people detected crossing the border but not apprehended. According to Biden-appointed Border Patrol
Chief Ortiz, the current surge differs from prior ones since most people now encountered at the border turn
themselves in rather than trying to escape since they think they’re simply going to be released. US Customs also
reports that encounters with noncitizens on terrorist watchlists rose from 3 in 2019 to 172 in 2023. Even the
Brookings Institute recommended in February 2024 that the border be temporarily closed to deal with the
immigration backlogs shown on the prior page.
Part of the migrant surge stems from travel agencies in Senegal which advertise visa-free travel to Europe and
then to the US; the packages include connections to smuggling organizations that facilitate movement to the US
border via bus lines in Sonora Mexico that operate dozens of buses a day to random spots on the border.
Policy differences. Trump proposes finishing his “wall” and relying on deportation. Others have written about
the practical difficulties of deportation programs involving local law enforcement and the National Guard 12. 11F

Harris opposes deportations but has moved to the right on immigration, although to be clear I’m not sure there
was much room for her to move any further left. In 2019, Harris’ position was that illegal border crossing should
be decriminalized into a civil offense; she reportedly now believes that existing laws should be enforced 13. 12F

Inflation and price controls

As shown below, Americans are upset about inflation of basic goods. Harris has proposed the first-ever “federal
ban on price gouging on food and groceries”. There’s little detail about how it would work, how price gouging
would be defined or how the FTC would police it. Even progressive reporters agree that the policy makes little
sense. One example, from Josh Barro in the Atlantic: “Harris’s plan is economically dumb but politically smart:
The vice president’s campaign promises make no sense to people acquainted with supply and demand, but they
might win elections”. In addition, evidence points to the White House and Congress regarding the inflation
spike: MIT economists estimate that at least 40% of the inflation spike was attributable to Federal spending,
while increases in producer prices accounted for only 10% 14. 13F

Trump has proposed a cap on credit card interest rates of 10%, so a new era of price controls may be upon us.
The last one in the 1970’s turned out to work poorly, triggering even higher inflation 15. 14F

US families who believe inflation is the most important Survey of most important financial problem facing US
family financial problem, Percent of respondents families, Percent of respondents
45%
Inflation; high cost of living
40%
Cost of owning or renting a home
35% Too much debt; cannot pay debts
30% Lack of money; low wages
25% Healthcare costs
20% Energy costs; oil and gas prices
15% Taxes
10% Interest rates
5% Unemployment; loss of job
0% College expenses; student loans
2004 2007 2010 2013 2015 2018 2021 2024
0% 10% 20% 30% 40%
Source: Gallup, April 2024 Source: Gallup, April 2024

11
Sources: CBO Demographic Outlook, Appendix B, Jan 2024; State of Florida vs USA, US District Judge T. Kent
Wetherell, March 8, 2023; Bloomberg Law, June 17, 2024; CNN, Dec 20, 2023; Brookings Feb 29, 2024
12
“Trump touts historic deportation plans but his own record reveals big obstacles”, NPR, August 14, 2024
13
PBS News, September 12, 2024
14
“The determinants of inflation”, June 2022, Kritzman (MIT) et al
15
“Flaws and Ceilings: Price Controls and the Damage They Cause”, Coyne et al, February 2018
9
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

NATO
Trump’s comments encouraging Russia to “do what it wants” to NATO countries that do not honor their financial
obligations to the alliance were startling to many people, myself included. That said, let’s also look at the
numbers. As shown on the left, the European defense spending gap vs the US was so wide that in 2006 NATO
implemented an agreement requiring each country to spend at least 2% of GDP on defense. It took until 2024
for NATO to hit the 2% target, so I computed the cumulative amounts in today’s dollars that Europe still “owes”.
The cumulative unpaid amount from the time of the 2006 NATO 2% agreement to 2023: $1.5 trillion. In other
words, I understand why some voters question NATO’s financial burden on US citizens.
US vs European defense spending Shortfall in NATO defense spending by country vs 2% of
Percent of GDP GDP defense spending target, billions of 2023 US$
10%
9% Amounts owed since
2006 NATO defense
8%
Joined NATO spending pact
7% United Kingdom 1949 $5
6% France 1949 $55
Italy 1949 $255
5%
Netherlands 1949 $141
USA
4% Denmark 1949 $52
NATO ex US
3% NATO defense spending Portugal 1949 $31
agreement target Belgium 1949 $112
2%
Norway 1949 $44
1% Germany 1955 $634
0% Spain 1982 $212
1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 Total $1,540
Source: NATO, World Bank, SIPRI, Federal Reserve, JPMAM, 2024 Source: World Bank, SIPRI, Federal Reserve, JPMAM, 2024

The regulatory state

The sharp contrast between Trump and Harris on regulatory policy is made clear in the two charts below, using
Biden as a proxy for Harris. What’s notable irrespective of who wins the election: four decisions by the Supreme
Court this year which may usher in the largest pushback on the regulatory state since the Reagan Administration.
As we reviewed in detail in the July 9 EoTM:
• The end of Chevron deference: no more automatic deference to government agencies by courts
• Expansion of the Major Questions Doctrine: any agency action with “vast economic and political significance”
requires clear Congressional authorization
• The statute of limitations for challenging Federal Regulations now starts at time of injury (not at passage)
• Right to a jury trial rather than by administrative law judges applies to many civil fines and penalties levied by
Federal agencies
Cumulative # of economically significant rules by Regulatory barometer: pages in the Federal Register
# of new pages per year, 4 year moving average
month 40 of each presidency 90k
300
Biden 80k
250 Obama
70k
Trump
200 60k
Clinton
150 GW Bush 50k
GHW Bush 40k
100
Reagan
30k
50
20k
0 10k
0 5 10 15 20 25 30 35 40 45 '61 '65 '69 '73 '77 '81 '85 '89 '93 '97 '01 '05 '09 '13 '17 '21
Source: GWU Regulatory Studies Center, May 2024 Source: Federal Register, JPMAM, 2024

10
 EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

Some comments on the Electoral college

Every four years there’s plenty of criticism of the electoral college and its concentrated allocation of voting
power to citizens in smaller states. For example, Wyoming has 144k people per electoral college vote while
California has 472k. But there’s something else that’s very concentrated: US production of food, energy and
minerals that allows heavily populated cities to thrive. The map below is reconfigured to show each state based
on its production value of food, energy and minerals. New York and Florida shrink, while Pennsylvania, Texas,
West Virginia and the heartland states grow in size.
The domestic content of US food and energy is ~80%, much higher than other manufactured goods (vehicles,
chemicals, computer equipment, clothing etc), and nationalism of food and energy production is rising. In some
entirely unintended way, the electoral college ends up imparting political power in excess of population alone
to food/energy states, which seems reasonable to me given their critical role in national security and food/
energy independence.
An energy, mineral and food weighted map of the United States
States sized based on their 2022 production value of energy, food and non-fuel mining
Colors based on state production value relative to population (green = largest per capita
surplus, red = largest per capita deficit)

Production by state includes the value of:

• crude oil, coal and natural gas
• electricity generation from wind, solar, nuclear,
hydropower, geothermal and biomass
• agricultural output from meats, crops, seeds and
related products
• precious and industrial metals
• natural aggregates (sand, gravel, crushed stone)
• non-fuel minerals (cement, lime, silica, phosphate
Sources: EIA, USDA, USGS, Bloomberg, JPMAM, 2024.
Cartogram methodology adapted from Gastner, Seguy and More (Yale-NUS, PNAS, 2018). rock, potash, salt and clay)

Pennsylvania map cited on page 7

PA 2020 election map overlayed with oil and gas fields
GOP = red, DEM = blue
Erie

Shallow oil field

Shallow gas field

Deep gas field

Gas storage area

See next page for discussion of China stimulus package

11
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

The China stimulus package, an important turning point

Summary: China’s government is signaling a commitment to reflationary, which may be the only way out of its
contraction that does not involve a deeper recession. Our sources tell us that Chinese economic officials have
become more receptive to input from domestic and foreign investors, particularly after August’s disappointing
economic results and increasing economic parallels with Japan in 1990. I don’t think it’s an exaggeration to say
that China is acting somewhat out of desperation given the severity of the declines shown in the charts below.
The big issues on the table for domestic and foreign investors: more firepower on the real estate crisis, steadier
profit generation and consumption growth, improvement in listing conditions for companies going public
(reduced fraud and disinformation) and opening up sectors like mining, construction, power generation and
shipping to foreign investment. We’ll see; this is a movie I have seen before in which China attracts foreign
capital just before destroying it (the 1999 GITIC default and again in 2021 when MSCI increased China’s weight
in the EM equity index to 40%, only for Xi’s “progressive authoritarianism” campaign to pummel the stock
market). For now, the package appears to be a serious commitment to reflation. Fiscal stimulus may follow,
perhaps after the National People’s Congress in October and Central Economic Work Conference in December.
Below: why did China act now, what’s in the package and the market impact so far. While Chinese equities have
bounced 10%-15%, valuations have only risen modestly compared to the lows reached earlier this year.
[1] Why did China act now: a lot of negative momentum heading into the stimulus decision
China equity markets retesting the lows of the last 2 years and large underperformance vs the rest of the world,
money supply growth tumbling, PMI surveys weakening, residential real estate starts back to 2010 (!!) levels….
China underperformance China's M2 money supply
Index (100 = January 2020) Percent, y/y
180 30%
MSCI USA
160
25%
140
MSCI Japan
20%
120

100 15%
80 MSCI EM
10%
60 Includes: cash, checking/savings accounts,
MSCI China CDs and retail money market funds
40 5%
2020 2021 2022 2023 2024 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
Source: Bloomberg, JPMAM, September 2024 Source: Bloomberg, JPMAM, August 2024
China composite PMIs China residential floor space starts
Index, (50+ = expansion) Square meters, millions
58 300
56
54 250
52
50 200
48
150
46
44
100
42
Caixin Global
40 50
38 National Bureau of Statistics

36 0
2021 2022 2023 2024 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24
Source: Bloomberg, JPMAM, September 30, 2024 Source: Bloomberg, JPMAM, August 2024

12
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

…commercial and residential property prices still falling, foreign direct investment fleeing China, dreadful
consumer confidence, weak real-time economic tracking surveys [not shown but we could have included five
straight quarters of deflation and for the first time, falling year on year wage growth]
China commerical and residential property prices China FDI monitor
Percent, y/y US$, billions
12% $125
10% Inward FDI
$100
Outward FDI
8% $75 Net FDI
6% $50
4% $25
2% $0
0% -$25
-2% -$50
-4% -$75
-6% -$100
2010 2013 2016 2019 2022 1998 2002 2006 2010 2014 2018 2022
Source: Bloomberg, JPMAM, July 31, 2024 Source: Bloomberg, JPMAM, Q2 2024

China consumer confidence China economic activity monitor (Bloomberg)

Index (100 = 1997) Percent, y/y change
130 10%
Exports, coal and electricity
125 9% consumption, steel production, motor
vehicle sales, real estate investment,
120 8% medicine consumption, telcom
115 7% equipment production, SOE output,
private enterprise output
110 6%
105 5%
100 4%
95 3%
90 2%
85 1%
1996 2000 2004 2008 2012 2016 2020 2022 2023 2024
Source: Bloomberg, JPMAM, July 2024 Source: Bloomberg, August 2024

[2] What’s in the package

Primary Target Lever Details
50bp cut to the reserve ratio requirement
Monetary 20bp cut to the short-term policy rate (PBoC 7d repo)
30bp cut to the mid-term policy rate (MLF)
Fiscal One-off cash transfer to people living in poverty
Economy ~50bp cut to the interest rate on exisitng mortgages
Expand loan guarantees for a program that subsidizes state-owned enterprises to buy vacant
Macro homes for conversion to social housing
Lower down payment requirement on 2nd home purchases to 15% (previously 25%)
Expand the avalibility of loan extensions to more business
Set up securities, funds and insurance company swap facility to allow more funding for equity
Monetary purchases
Set up relending program for stock repurchases and holding increases
Markets
Advocate and refine the regulation for more mid- to long-term capital to invest in the stock market
Market Regulation Encourage mergers, acquisitions and restructuring
Request listed companies to perform market value management (e.g. encourage buybacks)
Source: Bridgew ater, JPMAM, 2024

13
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

[3] Equity market impact so far

China skeptics have a point: over the past two years, China tried unsuccessfully to stabilize equity markets via
scrutiny of quant trading, short selling restrictions, stamp duty cuts, ETF buying by state funds, a new securities
chief and a 9-point plan to boost equity markets. None of it worked. So, what’s different this time? The breadth
of the package and the apparent commitment to do more. A key barometer to watch: will market participants
take advantage of cheap funding to buy Chinese equities? 16 15F

Since the package was announced Chinese equities have risen by 10%-30%, which pushed most categories into
substantial YTD gain territory. Even so, valuations are still at the low end of the last 10 years. The broader
question: is China is a “trade” or a “portfolio investment”? I think it’s the former. For the latter to apply, more
of China’s nominal GDP growth has to start accruing to equity investors. As shown in the table, China has the
worst pass-through from GDP growth to earnings and investor returns since 2010. All of those “BRIC” research
reports from 20 years ago totally missed the point: investors cannot live on GDP alone.
China equity returns since September 23, 2024 China YTD equity returns
Total return, US$ Total return, US$
35% 40%
35%
30%

CSI Onshore IT Services

CSI Onshore IT Services
30%

MSCI China B Shares

MSCI China A Shares

HS China Enterprises
25% 25%

Shang Composite
FTSE China Tech

Shenz Composite
CSI Onshore IT Services

Hang Seng Tech

MSCI Red Chips

20%

MSCI H Shares
20%

HK Hang Seng
MSCI China A Shares

MSCI China B Shares

MSCI P Chips
HS China Enterprises

15%

FTSE China

MSCI China

China ADR
Shang Composite

FTSE China Tech

Shenz Composite

15%
Hang Seng Tech

MSCI Red Chips

10%

CSI 300
MSCI H Shares
HK Hang Seng
MSCI P Chips
FTSE China

MSCI China

10% 5%
China ADR
CSI 1000
CSI 300

0%
5%
-5%
0% -10%
Source: Bloomberg, Sep 30, 2024. Blue: MSCI subcomponent. Gold: Index. Source: Bloomberg, Sep 30, 2024. Blue: MSCI subcomponent. Gold: Index.

China equity valuations Pass-through from nominal GDP growth to corporate earnings
MSCI China Index, forward price-to-earnings ratio and equity market returns, 2010-2024
22x Earnings growth Market return
China A Shares multiple of GDP growth multiple of GDP growth
20x MSCI China US NASDAQ 3.0 US NASDAQ 4.7
US S&P 500 1.4 US S&P 500 2.3
18x France 1.2 Taiwan 1.5
Canada 1.2 France 1.4
16x
Taiwan 1.0 Eurozone 1.2
14x Eurozone 1.0 Canada 0.9
UK 0.9 India 0.9
12x Australia 0.8 Korea 0.8
India 0.7 UK 0.8
10x
Brazil 0.7 Australia 0.8
Korea 0.5 Brazil 0.4
8x
2014 2016 2018 2020 2022 2024 China 0.4 China 0.3
Source: Bloomberg, JPMAM, September 30, 2024 Source: Bloomberg, JPMAM, 2024. Japan excluded due to declining GDP

Michael Cembalest
JP Morgan Asset Management

16
The PBoC announced two new lending facilities to support A-shares: a swap facility and a relending facility.
Swap facility: insurers, securities brokerages and fund management companies can swap holdings of bonds and
ETFs for government bonds and central bank bills, and then use those liquid assets to acquire funding to buy
stocks. Relending facility: PBoC will lend to banks at 1.75%, and then banks lend at 2.25% to listed companies
to fund share buybacks. Total potential support: RMB 2.4 trillion
14
EYE ON THE MARKET • MICHAEL CEMBALEST • J.P. MORGAN • September 30, 2024
2024 energy paper / US inflation/labor monitor / US Federal debt monitor / US economic monitor

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